Week Ending May 13, 2016

Tennessee Gas Pipeline’s “Connecticut Expansion” Wins Out in Collision between Right of Federal Eminent Domain and State Law Barriers; Nonetheless, Court Stays its Directive Allowing Possession of State Easement

This Article Appears as Published in Foster Report No 3099
Tennessee Gas Pipeline’s “Connecticut Expansion” Wins Out in Collision between Right of Federal Eminent Domain and State Law Barriers; Nonetheless, Court Stays its Directive Allowing Possession of State Easement

A Massachusetts Superior Court judge ruled on May 9 that the authorization FERC previously granted to Tennessee Gas Pipeline Co. (TGP) for a 13-mile system expansion in New England trumped a state law restriction that, on its face, required the Massachusetts legislature’s express permission to allow a small segment of the project to go through a protected state forest.  But before construction crews can go in, the court provided a breathing space for the state legislature to finish its review and offer comments.

The Connecticut Expansion Project, including the proposed route through the Otis State Forest, was certificated by FERC in a 3/11/16 order.[1]  The pipeline needed a new, two-mile easement from the Massachusetts Department of Environmental Protection (DEP) to pass through the protected forest terrain, which the state had designated a “conservation” area.  The DEP told TGP it could not grant the easement without first obtaining a “supermajority” (two-thirds) vote in support from the state legislature, a requirement stemming from “Article 97” of the state constitution.  The position of the state attorney general’s office was that this state condition superseded federal law.

The Project.  The route of the Connecticut Expansion Project, though just 13.4 miles long (utilizing 36-inch pipe), includes segments in New York (1.35 mile loop); Massachusetts (3.8 mile loop); and Connecticut (8.3 mile loop).   At a construction cost of $85.7 million, the expansion would provide 72,199 Dth/d of increased firm transportation capacity from an interconnection with Iroquois Gas Transmission, LP in Wright, New York to several delivery points in Hartford County, Connecticut.[2]  The looping segments were adjacent to existing TGP pipelines, but the contested stretch through the Otis State Forest required an additional permanent easement of six acres.[3]

The project drew numerous comments in opposition, as is frequently the case for proposals to expand gas infrastructure in New England.  However, as mentioned, the Commission gave the Connecticut Expansion the go-ahead on March 11.  The authorizing order included a standard instruction that the pipeline should first attempt to negotiate any necessary easements; but if negotiations prove unsuccessful, the company could commence eminent domain proceedings to obtain the easements.  The forum for such actions could be either a federal or a state court; however, FERC certification under Natural Gas Act (NGA) confers eminent domain rights on the applicant, regardless of the forum chosen for enforcement.

TGP was counting on rapid construction of the Connecticut Expansion Project with the goal of having it operational by November 1, 2016.[4]  Thus, it hoped to get started with tree cutting as early as May.  Concerned that the precondition laid down by the state DEP – i.e., getting Article 97 permission from the legislature – would bog down the construction schedule (if not outright derail the project), the company filed suit in March in the state court, asserting its federal eminent domain rights and requesting injunctive relief.

Opinion of State Court.  In his 21-page opinion, Judge Agostini fundamentally agreed with TGP that the eminent domain rights it received for its project under the NGA trumped any conflicting state law provisions.  His ruling authorized the project to go forward, but nonetheless stayed the effective date of the order until July 29 to give the state legislature an opportunity to act on the proposal currently before it to approve the DEP’s grant of an easement to clear the way for the expansion.

The court noted that FERC’s order certifying the project encouraged a degree of cooperation with state agencies having parallel jurisdiction over a project.  FERC regularly incorporates into such orders what it calls a “rule of reason” that urges pipelines to work with state agencies on issues of location, environmental mitigation, and construction procedures, even if “some such procedures and requirements will trigger delays and add costs,” so long as they are “not unreasonable.”

Judge Agostini observed that the Connecticut Expansion has undergone a great deal of environmental impact review.  Not only did FERC consider impacts, but Massachusetts’s own Office of Energy and Environmental Affairs studied the project and issued a “Final Environmental Impact Review.”  The latter’s conclusion was that alternative routes for the project would have a greater environmental impact than the route proposed by TGP.  FERC’s environmental assessment, for its part, concluded that the impacts on Otis State Forest would be “minor” and that the company had complied with state requirements for submitting information about the project.  A condition of FERC’s certification was that, before it commenced actual construction, TGP must document that it has received all “authorizations required under federal law.”

Post-Certification Activities.  Even with a certification in hand, TGP still must apply to FERC for a “Notice to Proceed” before commencing construction activities.  It did so on March 22.  On March 25, FERC requested several confirmations from TGP on the status of compliance with several environmental regulations.  Among the confirmations requested was TGP’s assurance that it would not cut trees in any area for which it had no easement, including the “lands protected Under Article 97 of the Massachusetts State Constitution.”[5]  On March 30, FERC issued a second request for information from TGP, which sought in part to evaluate the pipeline’s request for a “Limited Notice to Proceed.”

On April 12, the U.S. Fish and Wildlife Service weighed in with a concern about the impact of construction on migratory birds.  It “opined” that tree felling from early spring to early fall would “injure or kill migratory birds” which are likely to be present, and thus “contravene the Migratory Bird Treaty Act.”

TGP’s Litigation.  The subject lawsuit filed by TGP in March sought the state court’s confirmation that TGP had a “substantive right to condemn” the easement through the protected lands.  It claimed that it had satisfied the “three conditions” for condemnation of easements and that such requests are “routinely ordered on an expedited basis.”  The state countered that the “unique” state constitutional provision at issue, Article 97, insofar as it “promotes conservation and environmental welfare,” is “exempt” from the U.S. Constitution’s Supremacy Clause (which would normally place specific rights granted pursuant to the NGA ahead of conflicting state laws or regulations).

A secondary argument of the state was that TGP’s initiation of condemnation proceedings was “premature.”  In this regard, it maintained that the pipeline had not yet made “reasonable efforts” to comply with Article 97, and that, moreover, the permitting processes of FERC and associated federal agencies was not yet complete.

In evaluating the litigants’ respective arguments, the court began with an overview of FERC’s authority under the NGA and the rights conferred on certificated projects.  The Commission’s review, noted Judge Agostini, includes “a full range of environmental and land restoration standards surrounding the construction of interstate natural gas pipelines.”  The “breadth” of the federal statutes and regulations, he continued, combined with applicable safety regulations, “compels the conclusion that Congress has annexed the field of interstate gas pipeline regulation, including land maintenance, environmental and restoration standards.”

Turning to the doctrine of federal preemption, the court observed that federal laws may preempt state laws under three situations:  when a federal statute explicitly declares that state laws are preempted; when the federal statute in question reveals an intent to “occupy the field through pervasive and comprehensive federal laws and regulations”; or where there is an “actual conflict,” in that it is “impossible to comply with both the state and federal laws” and the state law “stands as an obstacle to the accomplishment” of the federal law’s purposes.

Conversely, the court cited legal precedents warning that the preemption of a state’s “historic police powers” is not to be lightly inferred; there must be a “clear and manifest purpose” on the part of Congress to do so.

Applying these principles to the instant case, Judge Agostini concluded that Congress intended to grant FERC an array of “plenary power[s]” over natural gas transportation and sale, including authority over siting and construction of new interstate facilities.  Moreover, the judge found that Congress has “expressly” preempted state regulation in these respects, as “reflected in the statute’s plain language.”

The court also found that the second and third tests for federal preemption were satisfied under the facts of this case.  He employed particularly strong language in affirming that the third test – actual conflict – was met, stating: “it is beyond cavil that Article 97, by giving the Commonwealth an unfettered right to stop this and similar projects, would directly and substantially conflict with the federal law [and would] eviscerate the NGA.”  The “regulatory objectives of the two government entities are simply incompatible,” he concluded.[6]

The State’s Defense.  In evaluating the strength of the state’s counter-argument, the court remarked that the Commonwealth asserts this case is different from the typical NGA preemption issue due to the nature of Article 97.  The latter, insisted the state, involves a “public trust doctrine provision in a state constitution entrusting the state legislature with sole authority to allow – by a supermajority…–-a change in use [of a conservation area] or an easement.”  The state submitted that Article 97 is a “critical component of the Commonwealth’s sovereignty,” arming it with the ability to protect its “forests, mountains and national [sic] resources.”

But the judge was struck by the breadth of the state’s argument.  It is “so expansive,” he observed, that it would “preclude any activity by the federal government that would seek to intrude on such conservation territory.  I suspect,” he mused, “that the appellate courts would not look favorably on such a power sharing arrangement.”[7]

Continuing to come down hard on the state, the judge stated he’d be “remiss” if he didn’t reflect on the consequences of the Commonwealth’s position.  He found “particularly troubling…the ease at which a state has the ability to stop a federal interstate project…by simply invoking a state constitutional provision geared to protect the environment.”  He believes that, if this approach were allowed, other states would be “well advised to adopt this road to confederation, particularly those states that have expressed a less than harmonious relationship with Washington.”

Constraints on TGP’s Right to Proceed, and the “Rule of Reason.”  Nonetheless, the court’s opinion held, the preemption doctrine does “not give Tennessee an unrestrained right to ignore the Commonwealth.”  The judge then pivoted to an analysis of the “rule of reason” incorporated into the ordering paragraphs of TGP’s FERC certificate for the Connecticut Expansion.  This provision delineates a balance that must be struck between the “state and local authorities’ exercise of their power” and “an application’s [sic] bona fide attempts to comply with state and local requirements.”

While the provision[8] overtly encourages “cooperation” on the part of the applicant – even if a state or local authority requires “something more or different” than FERC – on the other hand it cautions state and local agencies that they may not “use their regulatory requirements to undermine the force and effect of a certificate issued by the Commission.”

However, FERC disavowed any willingness to “act as a referee” in administering disputes arising from this tension.  Rather, in the event of a conflict, the parties “are free to bring the matter to a Federal court for resolution.”

With TGP and the state tilting over the meaning of this “rule of reason” clause – the state claimed it means that the pipeline must first make a good faith effort to comply with Article 97 – even Judge Agostini acknowledged that “the motivation and purpose of this provision is not clear.”  The company’s rebuttal to the state’s position was that such verbiage is “standard” in FERC decisions and may not be employed to “prohibit or unreasonably delay the construction” of certified facilities.

The court emerged with the conclusion that FERC “genuinely wants consensus among the parties,” even as it “fully recognizes its authority to mandate the terms and conditions of a project.”  This led the judge to agree with TGP that “FERC has encouraged the parties to engage in a spirit of cooperation” regarding post-certification disputes, but that this does not constitute “an invitation to revisit the decision-making of the agency.”

Moreover, the court viewed a pipeline’s duty to “negotiate in good faith” in the eminent domain context as pertaining to compensation for landowners.  It thus does not apply as a “prerequisite of exercising condemnation authority,” held the court.  The judge further pointed out that the Commonwealth has not raised the issue of compensation offered by TGP.

How Far TGP Has Gone to Satisfy the State Legislature.  Noting that the bill to approve the TGP-requested easement has “languished for months,” the court concluded that the record was “unclear” regarding whether TGP has made “a reasonable effort to respond to legitimate legislative questions.”  Thus, it was unclear whether the state legislature may be issuing requests for additional information that were “duplicative, unnecessary and [in effect] a contrivance to delay the project.”  The court moreover could not tell whether the state was seeking only to “address forthcoming issues,” or was out to stop the project altogether.

The suggestion of the state’s attorneys that, if there is a disagreement with the legislature, the pipeline could go “back to FERC for a decision and then to a federal court” sounded to the judge like an effort to “derail the project.”

The court then seized upon the suggestion of the state’s counsel at the hearing that “this issue need not be ultimately resolved.”  With the current legislative session coming to an end on July 31, the judge could provide that additional time to enable the lawmakers to conduct a hearing and issue any “directives or recommendations” without unduly delaying TGP’s construction project (since, in the court’s belief, TGP would not secure all necessary permits to “begin construction in the near future”).

Despite this judicial deference to the pending legislative inquiry and Article 97 vote, the opinion ended on a strong note for the pipeline.  The court confirmed, as requested by the company, that TGP holds a valid certificate; that the defendant’s [i.e., the state’s] property is needed for the pipeline’s construction; that TGP has been unable to acquire the easement by agreement; that TGP has satisfied all the requirements of the NGA; and that “Tennessee is authorized by the Act to exercise the power of eminent domain.”

Request for Injunction Relief.  In the final section, the court addressed TGP’s request that it be granted preliminary and permanent injunction allowing it to enter the land and begin construction activities.  Significantly, the judge held that the failure of TGP thus far to obtain all necessary permits or satisfy all the certificate’s conditions was not, as the state argued, a bar to obtaining injunctive relief.

As to other issues governing the right to relief – the probability of success on the merits, the risk of irreparable harm if relief is not granted, and the public interest – the court held:

  • The pipeline has demonstrated that it is entitled to exercise eminent domain, a finding that “without more…favors immediate possession”;
  • As to irreparable harm, the court agreed with TGP’s assertions about (1) added costs if the construction schedule is impaired and (2) delay in getting lower-cost gas supplies to end users if it cannot meet its November 1 target date for completion; hence, application of this criterion also “favors immediate possession of the easements”;
  • As to the other side of the coin – harm to the defendants – there was no discernible reason why the harm to the state would be any greater if possession were to be immediately granted, versus at some later date;
  • As to the impact on the “public interest,” FERC has already determined, as part of its certification process that the project is in the public interest; it is also “logical” that timely completion by the upcoming heating season was in the public interest.

In sum, the court concluded TGP’s motion for a preliminary injunction to allow it immediate possession of the easement should be granted.  Nonetheless, it decided to stay the relief until July 29 for two reasons:  first, it would give the Massachusetts legislature additional time to act, thus “eliminating any factual issue”; and second, it would give the parties sufficient time, if desired, to seek a stay of the court’s decision in a court of appeal.

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[1]   FR No. 3091, p. 14.

[2]   All of the new capacity was spoken for through binding precedent agreements with three gas LDCs.

[3]   The two-mile stretch through the state forest also required a temporary 15-area “work space” easement.

[4]   FERC’s order provided a two-year period for construction, expiring on 3/10/18.

[5]   Another FERC request was for evidence that the state DEP had concurred that no Water Quality Certificates under section 401 of the Clean Water Act were required for “non-mechanized tree felling for the proposed project.”  The court added that the record showed that the state agency was still considering the impact of tree cutting and had not yet concluded whether a section 401 certification was required.

[6]   The court buttressed its view of the NGA’s preemption of the state law at issue here with citations to the courts’ interpretation over its long history.

[7]   The opinion distinguished the sole case relied upon by the state, a 1991 Supreme Court decision, to uphold its argument that the preemption doctrine should not be used to overwhelm state sovereignty.  The cited case did not involve the NGA and was driven by an entirely different exception to the general federal preemption doctrine.

[8]   Paragraphs 85-86 of the order.

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Copyright © 2016 by Concentric Energy Publications, Inc.  All rights reserved.

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